Stagwell Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 3 speakers on the call.

Operator

Good morning from Stagwell's offices in Washington, D. C, and welcome to Stagwell Inc. Earnings webcast for the Q1 of 2024. My name is Ben Allison, and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer and Frank LaMouta, the Chief Financial Officer.

Operator

Mark will provide a business update, and Frank will share financial review. After the prepared remarks, we will open the floor for Q and A. You are welcome to submit questions through the chat function. Before we begin, I'd like to remind you that the following remarks include forward looking statements and non GAAP financial data. Forward looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in our earnings release, slide presentation and the company's SEC results.

Operator

Please refer to our website, stagwellglobal.com/investors for an investor presentation and additional resources. This morning's press release and the slide deck provide definitions, explanations and reconciliations of non GAAP financial data. And with that, I'd like to turn the call over to our Chairman and CEO, Hartman.

Speaker 1

Thank you, Ben, and thank you to everyone joining us for our Q1 earnings call. On our Q4 call in February, I talked about our excitement and confidence in 2024, highlighting that we expect to return to growth in the first half of this year. Several factors give us confidence, including the abatement of industry headwinds including the abatement of industry headwinds, such as tech restructuring activities, strong new business trends, a record breaking political cycle and our continued investments in digital innovation beginning to contribute to growth. Today, I'm pleased to share that these trends are beginning to play out exactly as we anticipated. Stackwell delivered $670,000,000 of revenue in the Q1.

Speaker 1

These figures represent encouraging growth in revenue of 8%. Additionally, we continue to post record net new business figures for both the Q1 last 12 months. Importantly, we delivered these growth figures while effectively managing our costs. Actions we took in 2023 helped us grow our adjusted EBITDA by 25% year over year to $90,000,000 These results are highly encouraging and give us the confidence to reiterate our full year guidance today. We also draw confidence from gathering tailwinds.

Speaker 1

Advertising is once again growing. Our reputation is expanding and we are participating in record new business pitches. AI will, within the year, create vast digital transformation opportunities. International work is proving a fertile area for expansion and the advocacy season promises to be historic. This quarter's performance was driven by 2 double digit growing capabilities.

Speaker 1

Performance Media and Data grew 13% in revenue and 12% in net revenue. Advocacy showed 80% revenue growth and 54% net revenue increase. Digital transformation, led by double digit growing GAAP, returned to revenue growth, but it's still building up an expanded pipeline as tech companies are beginning to come back online and research is still overcoming the impact of last year's writers' strength. Continuing a trend from last year, we saw outsized year over year growth in our relationships with our largest most impactful customers. In the Q1, our top 100 customers now representing 50% of our total net revenue grew 25%.

Speaker 1

Geographically, we saw a return to growth in the United States, our largest market with total revenue growth of 9% year over year. Our international businesses also continued their momentum with revenue growth of 7% in the quarter. Europe has been a major area of focus for us recently and we opened our new regional headquarters, Bluefin, in London just a few weeks ago. This focus is translating into strong revenue momentum with the EMEA region growing 14% year over year. Turning to cost and profitability.

Speaker 1

As I mentioned previously, we delivered $90,000,000 of adjusted EBITDA in the Q1, 25% higher than the Q1 of last year and representing a 17% margin, an improvement of 3 20 basis points year over year. This impressive figure is a direct consequence of the proactive steps we took last year to manage our costs. In 2023, we took staffing actions that resulted in $98,000,000 of annualized savings. As a result, our labor costs are 2% lower in the Q1 of 2024, helping to deliver staffing to net revenue ratio of 64.3%, an improvement of 2 70 basis points over the Q1 of last year. Also driving this margin improvement is a laser focus on managing our G and A expenses.

Speaker 1

Despite our growing net revenue in the quarter, our total G and expenses were almost exactly the same as in the same period last year. We're installing modern systems for back office, utilizing offshoring and adding AI capabilities to streamline operations. We've seen particularly strong growth in adjusted EBITDA from our performance, media and data capability growing 2 12% and creativity and communications growing 42%, a testament to the focus that all of Stagwell is placing on controlling our costs. Net new business continues to break company records, giving us increased confidence in our full year guidance. In the quarter, we delivered $66,000,000 of net new business, a record for the Q1 for Stackwell.

Speaker 1

This brings our last 12 month net new business figure to $284,000,000 also a company record. Quarter after quarter, we've increased the LTM net new business figure to $212,000,000 a year ago. Importantly, the size of our wins has grown impressively and continue to be a drag into larger global pitches. In the Q1, the average win size increased 13% year over year. These net new business numbers were driven by some important wins, including Fogo de Chao, The Star Tribune, Fossil and Wilson as well as expansions with Target and L'Oreal.

Speaker 1

In Q1, Stackwell Agencies captured over 70 of the top awards across major industry shows, including an array of agency of the year designations. Maybe 1% to 2% of the market, we have far exceeded that in terms of industry recognition. These include 4 agencies featuring on the Ad Age A list, including Coder Theory being recognized as Business Transformation Agency of the Year. Gale winning U. S.

Speaker 1

Advertising Agency of the Year by campaign. Assemblybean named Media Agency of the Year and exponent PROPT com shop within COVID-nineteen took home the disruptive Agency of the Year crown. Our M and A program was active. We might not have gotten every deal we saw, but the net revenue and adjusted EBITDA from companies acquired in the 4th and 1st quarters exceeded the net revenue and adjusted EBITDA lost from Concentrix Life Debt disposition. We achieved this despite the initial outlay on acquisitions being only about 15% of the dispositions gross proceeds.

Speaker 1

This is concrete evidence that our M and A machine can be a major driver of value for investors moving forward. As I've discussed previously, we're exploring a further non core disposition. Hope to have more color on that later in the year. In the 1st months of 2024, we made strong progress in expanding our global presence through acquisitions. We had a UK digital collective sidekick and our 1st French creative agency, What's Next Partners.

Speaker 1

Just last month, shortly after the end of Q1, we announced the acquisition of PROS, a digital focused brand and marketing consultancy in Brazil, which significantly expands our Latin American presence. We're looking to become more competitive internationally by This quarter This quarter, we took steps to sharpen our capabilities in data, media and AI through a combination of internal initiatives and external partnerships. In the Q1, we maintained strong investment of $14,000,000 into the Stegwell Marketing Cloud, our AI enabled suite of products for modern marketers. We're now working to bring our research products under the Harris Quest brand to market and expect to see sales growth in the back half of the year. SMC orchestrated its first software launch with Google Cloud as we deepen the partnership on Gen AI announced last year.

Speaker 1

At Google Cloud Next, we launched a data clean room solution on Google's platform that will provide our clients with a private and secure space to mix and match their first party data with Stegwell's vast trove of data sources. We're also focused on growing AI leadership across our agencies. One focus will be scaling best in class use cases such as Gale's enterprise alchemy AI platform announced this quarter, which reduces the time spent of critical tasks across all disciplines in the agency to help Gale's almost 800 people work smarter, better and faster. Left Field Labs is incubating customer AI solutions to elevate the customer experience. And our largest performance media agency, Assembly, is set to announce a new AI solution later this month.

Speaker 1

We are making significant progress in our Media Studios unit on building the last mile of the media chain from planning, targeting and audience creation down to placement and media supply. On our last call, I announced we've been building a Stegwell IV Graph solution. Today, we are partnering with Nexen, a global unified advertising technology platform. We'll have more to share on that partnership in the coming weeks as we roll out our new offerings in data and media. In other parts of our business, we're preparing for Sport Beach this June at the Cannes Lions Festival, where we'll return for a 2nd year with more brand sponsors and more athletes, including Joe Burrow, Juju Watkins, Megan Rapinoe.

Speaker 1

Sport Beach continues to benefit the company increasing our exposure worldwide and leading to new business opportunities. Finally, we're excited later this month to host our definitive Future of News Summit partnership with top publishers across the U. S, including Axios, Business Insider, New York Times, Politico, Wall Street Journal, Washington Post, The Trade Desk and Ad Fontes Media. Recognizing that fears around brand safety have made advertisers more cautious about advertising across news and opinion sites, we released a first of its kind study for advertisers to better understand where and how they should be advertising across the news industry. It's been a busy quarter.

Speaker 1

We are never standing still. We are marching forward to achieve our goal of offering everything from global full service to platform self-service. Wherever you look SkyGrow is evolving and bringing our partners along with us to the cutting edge of marketing services. We're on the forefront of AI, of global performance marketing, of culturally relevant events, of advancing online advocacy campaigns, of the move to more social media and content and the combination once again of media and creative. These efforts and a solid quarter of revenue growth give us confidence about the year ahead.

Speaker 1

Now I will hand things over to Frank Lenuto, our Chief Financial Officer, to walk you through some of our financial results in more detail. Frank?

Speaker 2

Thank you, Mark. Good morning, everyone, and thank you for joining us to discuss our Q1 results. As a reminder, you would like to ask a question after the prepared remarks conclude, please feel free to submit them through the chat function. The company returned to revenue growth during Q1, driven by strong performance in our media and advocacy businesses, improving market conditions in the U. S.

Speaker 2

And continued momentum in the international markets in which we operate. For the quarter, we reported revenue of $670,000,000 an increase of 8% as compared to the same period in the prior year. Net revenue, excluding pass through costs, increased 2% for the same period to $532,000,000 Building on the trend from 2023, our largest customers continued to invest in their relationship with our agencies. In the Q1 of 'twenty four, our top 100 customers now represented 50% of our consolidated net revenue, grew 25% versus the prior period, our largest improvement in the last 5 quarters. The number of relationships also expanded with the number of customers in our top 100 being serviced by more than one of our agencies increasing 12% year over year, providing further evidence that our strategy of delivering integrated services is working.

Speaker 2

Another positive signal was the occurrence of an inflection point where period over period revenues with existing customers from growing relationships exceeded those from declining relationships. Our net new business performance for the quarter represented the 5th consecutive quarter of increasing trailing 12 month performance and set another high watermark of $284,000,000 We are tangibly benefiting from being invited to participate in larger global pitches as the average size of our wins increased 13% year over year. The combined impact of net new business and improving performance with existing clients leads us to reaffirm our guidance for the year. Turning to revenue by capability. The Q1 saw revenue growth in 4 of our 5 principal capabilities.

Speaker 2

Performance, Media and Data delivered $77,000,000 in revenue, an increase of 13% over the prior year period. This performance was driven by a combination of new business wins and growth from existing customers. Particular areas of strength included transportation and lodging, consumer products and the financial services sectors. Creativity and communications delivered $292,000,000 in revenue, an increase of 11% over the prior period. We had strong growth from a number of consumer products customers as well as clients in technology, media and communication sectors, which grew about 2% over the prior year.

Speaker 2

Digital transformation returned to growth in the Q1 with revenue increasing $196,000,000 a 6% improvement over the prior period, driven by strong performance in food and beverage, advocacy and technology based clients, which grew 20% period over period. This growth was partially offset by softness in financials as we anniversary the regional banking crisis from early 2023. Consumer insights and strategy reported $46,000,000 of revenue, a decline of 7% year over year. This was largely a consequence of customers within the entertainment sector increasing spending more slowly subsequent to the Hollywood Actors and Writers Strike late last year. SAGROL Marketing Cloud posted $60,000,000 in revenue, an increase of 7% year over year.

Speaker 2

The suite of software products continues to be an investment priority for us. In the Q1, we maintained our investment spending of approximately $14,000,000 into the cloud as we continue to build an industry leading suite of tech products for the modern market. Finally, advocacy is a significant contributor to the business mix in election years as we benefit from increased political fundraising and the spending running up to the elections in November. In the Q1, advocacy revenue grew to $65,000,000 an increase of 80% over the prior period. Now turning to geographical breakdown.

Speaker 2

We saw continued strong revenue growth in our international businesses of 7%. This was led by exceptionally strong growth of 14% in the United Kingdom. In the U. S, our largest market, revenue increased 9% over the prior year. Turning to costs, management took decisive can clearly be seen in our Q1 results.

Speaker 2

In the first can clearly be seen in our Q1 results. In the Q1, the company delivered $90,000,000 in adjusted EBITDA, an increase of 25% over the prior period. And it also increased the related margin to 17%, an improvement of nearly 3 20 basis points over the prior quarter. Staffing is our largest cost. And in 2023, we took actions that reduced annualized salaries and headcount by $98,000,000 and 4% respectively.

Speaker 2

We benefited from the full effect of these successive actions during Q1 as labor costs were lower by more than 2% or $7,000,000 and the staffing cost to net revenue ratio was lowered to 64.3%, an improvement of 270 basis points versus the prior year and the lowest first quarter ratio since our merger. In addition to staffing, we also focused on efficiently managing our G and A costs. For the Q1, our G and A expenses were just under $100,000,000 in line with the same period in 2023. This results in G and A as a percentage of net revenue ratio of 18.8%, an improvement of nearly 30 basis points versus the prior period. Our G and A costs are inclusive of certain unbilled expenses.

Speaker 2

These costs tend to grow in line with our net revenues. For both the 1st quarters of 2023 2024, our unbillable customer expenses as a percentage of net revenue remained stable at 6%. Adjusting G and A expenses to account for these unbillables, our G and A actually decreased by slightly more than $1,000,000 year over year, representing a 2% decline, excluding unbilled goods. The cumulative impact of our revenue growth and cost actions contributed to the strong adjusted EBITDA performance during the quarter and allowed us to maintain our strong investment in the Stagwell market cloud. Excluding the $14,000,000 of cloud investment in Q1, our first quarter adjusted EBITDA margin would have been approximately 19.9%.

Speaker 2

Now moving to the balance sheet. We continue to make efficient allocations of capital to maintain a strong financial position. Starting with deferred acquisition consideration, we reduced obligations approximately $65,000,000 from the end of the Q1 last year to $101,000,000 at the end of the Q1 in 'twenty four. We remain on track to reduce our debt obligations to approximately $40,000,000 by the end of the year. We also acquired 4,000,000 shares during the quarter at an average price of $6.11 per share for approximately $25,000,000 Our existing buyback authorization as of quarter end now has $114,000,000 in remaining availability.

Speaker 2

CapEx and capitalized software for the quarter was $14,000,000 broadly in line with our targets. As a result, we ended the quarter with cash of $130,000,000 and drawings under our revolver of 182,000,000 dollars Our leverage ratio at quarter end was 3 times. And finally, as highlighted by Mark in his remarks, we are reaffirming our full year 'twenty four guidance as follows: organic net revenue growth is expected to be between 5% to 7%. Organic net revenue excluding advocacy growth is expected to be 4% to 5%. Adjusted EBITDA is expected to be between $400,000,000 to $450,000,000 We expect to deliver approximately 50% free cash flow conversion and adjusted earnings per share is expected to be between $0.75 $0.88 That concludes our prepared remarks for this morning.

Speaker 2

I will now turn the call back over to Ben Allison to open the Q and A portion of the call.

Operator

Thank you, Frank. Just a reminder, if you have any questions, please submit them via the chat button at the top of the screen. We're going to start with

Speaker 2

a question here from Bob Crockett

Operator

at Roseland. He says, can you please walk us through what you see as the drivers of acceleration of organic net revenue growth over the balance of 2024 from the 2% reported in Q1 to the 5% to 7% that's in the guide today. How much visibility do you have into this acceleration? Do you think it's going to be steady ramp or is there going to be 1 or more term achievements in which it's really going to tick up?

Speaker 1

Sure. Thank you, Martin, for that question. Look, I think as you analyze it, you can see international is moving along nicely, advocacy is moving along nicely, media is moving along nicely. And the next to really come up and continue to, I think, grow is digital transformation has room for growth. Look, media is firing on all cylinders already with double digit growth.

Speaker 1

Our pipeline when I look at our pipeline, it's 50% higher than it was at this time last year. We are in a record number of new pitches of enhanced size given the enhanced reputation. Also AI is beginning, I think, to customers are beginning to get over the let's take a look at it and start to implement it phase. So I think that you're going to really see a good second quarter and things will build to the 3rd and 4th quarters because that's when advocacy and media in the holiday season tend to crescendo. So I look at it as you're going to really kind of have see strength building through the year as I think digital transformation will strengthen and media and advocacy will really take off in the second half of the year.

Speaker 1

So that's how I see it developing and meeting the goals.

Operator

Perhaps just on digital transformation, question here from Jason Kreyer at Craig Hallum. He's asking about green shoots we're seeing in digital transformation that kind of gives us confidence in a return to growth there.

Speaker 1

Yes. We're seeing, I think, some of the companies that had cut back last year beginning to come back. We're seeing growth in, as again, really AI. I mean, look, if you make the chips and then you have all the cloud, you need the applications. And I think that people are discovering the applications.

Speaker 1

And we are in the AI application building business. That is what we're doing. I think first customers had to be assured that their data would not go into the worldwide global data pot. And I think that's why we put together the clean rooms for both internally and for our clients in order to provide that kind of confidence. And I think as customers get confidence that AI can be used safely and securely, you're just going to see this take off.

Speaker 1

We're going to go back to the biggest problem being finding engineers as opposed to this problem finding work. And I think that really should hit in the second half of the year. I think you can see that building in all of the tech companies in terms of what they're reporting.

Operator

Maybe just on the tech customers as well. I'd address the question here. Just talking about tech coming back, some of the key trends we're seeing with technology customers and then sort of rebounding in this year?

Speaker 1

Yes. I mean, we're seeing them slowly. They're not back to full throttle yet. I think they still have more to go. It is shaping up to be a year of competition.

Speaker 1

We show some increase. Again, our list of top clients would be a list of large sized tech companies. In many ways, we're a tech company helping to develop AI front ends, consumer interactions and as well as to build new applications for our clients. But I think you're still seeing some caution on the side of those companies. But again, they are building out their programs how to bring AI to the masses.

Speaker 1

And that is where we're going to benefit. And I think at a certain point, the floodgates will open here and that that can't be too far away.

Operator

Shifting gears a little bit just on to the international how should we think about growth by geography being factored into our guidance of growth by geography moving forward? And yes, is expansion to Asia Pacific still a meaningful initiative for you to unlock those biggest global contract opportunities?

Speaker 1

I think you can see when you go through our acquisitions, you can see clearly our strategy. A group of those acquisitions are frontiers of marketing, people like movers and shakers, people like Left Field Labs and AI. And the other group of acquisitions is clearly Brazil, U. K. You're going to see really more focus in Asia and the Middle East in the next few months.

Speaker 1

I think that you're going to see us build in the global network that we need to win. Look, for the first time, we're in a $40,000,000 to $60,000,000 pitch. People are looking at Stagwell and seeing us as the logical company taking on the majors at a growing scale. So we're going to complete the global network. We also think that we put together Bluefin, which is an office where we brought together 17 European agencies in London.

Speaker 1

And we can see the benefits, 14% growth, just beginning, frankly, because they used to get very small pitches because their services were fragmented. Now it's almost like a shopping mall. You can see advertising, research, media, a set of coordinated services and they're getting multimillion dollar our agencies and having added a structure with James Townsend, our agencies and having added a structure with James Townsend, a CEO, having grown in a whole marketing team, I think we have very good prospects. And that's what we're going to do region by region until we have a complete functioning scale global network here.

Operator

Great. We'll just have a question on menu business first and then we'll shift to advocacy, a number of questions on that topic. But Laura Martin over at Needham, she goes, dollars 66,000,000 of net new business wins in Q1, very impressive up to 284 for the trailing 12 months. What do you think is the normalized revenue growth rate for Stack 1,000,000? Like are we in the mid single digits, can high single digits?

Operator

What do we think?

Speaker 1

Well, look, I think that we'll see a little bit what the Fed does today with our economy. But look, I think we're building back to our targets, right, of getting to the 10% year over year growth. We know that we 15% in 2022. 2023, for a number of factors, was not the year we had planned, but a lot of those factors were exogenous. They were fear of recession.

Speaker 1

They were media slowdowns. They were strikes across photo and other industries. There was pullbacks. We're striving to get back to those numbers and I think this is a big transition year. By the end of the year, we'll have an expanded global network, we'll have a Stagro Marketing Cloud.

Speaker 1

Products, at least in research, I think, outbound in full force. We'll have our media and ID graph that will extend our capabilities, I think, into deeper media services that will also open up, I think, more revenue opportunities. Digital transformation will be in the thick of AI. So to me, this is a transition year back to that kind of growth that we believe is the long term target that the firm is capable of.

Operator

Advocacy, a couple of questions on this. First up from Steve Cahill at Wells Fargo. Did advocacy outperform your expectations on the revenue net revenue and adjusted EBITDA side in Q1? We obviously didn't adjust the guidance today, but does that strengthen advocacy as well as the new business talent you just discussed, give you some more confidence in the ability to achieve the guidance range?

Speaker 1

I think the strength of advocacy obviously gives us it's one of the elements that gives us confidence. I think advocacy was a little stronger than expected, particularly since there were no real primaries on each side. And so when you see that kind of strength in advocacy and you look at it well, 2028, they'll probably be I thought 2024 will be the record, but now I realize it will be 2028 because there will be no matter who wins, hopefully presidencies on both sides and it will be double primaries. So I think that the building strength of this, given the fact that there are no primaries, essentially shows that this is going to be a record year. You can see it forming.

Speaker 1

People are really going to intensively focus on this race, particularly once the conventions get kicked off. And even though there's a little bit of a lull now, advocacy is picking up. People are planning on an incredible race. And then I think the services we provide will continue to diversify in the air.

Operator

Just sort of following up on advocacy, another question from Laura. She's asking, there's obviously some press speculation that some legal fees might cannibalize media spend and focus from the Trump campaign. Do you think that those legal structures might lower media spending on advocacy revenue in 24 versus expectations and how maybe might that impact our business?

Speaker 1

We don't do fundraising for the Trump campaign. So it's not our focus is really on the House and Senate races and super PACs that are not directly the campaign. So that factor wouldn't come into us, as you know, really either way. Look, I think America is poised for a big race. And people there used to be kind of no tradition of people getting involved and active.

Speaker 1

It used to be about only 1% that was contributed. Now it's hit for around 10% to 12%. And I think you're going to see really strong participation. And those factors are not going to influence us one way or the other. Great.

Operator

One question on growth rates and then we're going to talk about AI a little bit, but question from Cameron McVeigh about Morgan Stanley. Can you maybe discuss what drove some of the and this may be for Frank as well, what drove some of the divergence in growth rates between gross and net revenue in the quarter? And how much of an impact might Performance Media have on that?

Speaker 1

It's less about performance media. We have now acquired a number of companies that have more that recognize more GAAP revenue versus net revenue. You look at kind of we acquired Team Epiphany, Leftfield Labs. Some of these new companies are more oriented. Some of the digital online fundraising also generates kind of higher levels of GAAP revenue.

Speaker 1

So I think those 3 those 2 or 3 factors show this divergence. We showed that we talked about the GAAP revenue because after all, it is evidence of economic activity. If you're looking for how we're going to make money, the fact that those kinds of revenues change are part of showing kind of the building sequence of events here. I think it's going to be quite favorable to Stagwell through the year.

Operator

Shifting gears, AI. A question from Jeff Van Sinderen,

Speaker 2

so 2 parts to this. 1,

Operator

can you talk about the latest you're seeing in terms of customer projects involving AI? And then the other part of it is, can you speak more about how we're using AI in our shared services platform and internally to improve efficiency?

Speaker 1

Sure. We have about 300 to 400 people internally. Well, just to go back to remember that we have the Stagwell Market Cloud and we have a central innovation group And that was one of the key principles in building Stagwell. And as Frank pointed out, our EBITDA would be another $14,000,000 higher if we were not investing heavily in AI and other tech products as a central innovation function. We've got about 300 or 400 employees who are signed on to the central kind of AI experimental.

Speaker 1

Right now, we're completing our survey of what everybody is looking for out of AI. Obviously, on the word side, people are looking for lots of the ability to summarize information, the ability to help write things more clearly. And I think there's a lot of interest in text to video, give me a picture of a dog in snow kind of thing. And I think on the client end, clients wanna make sure that before they dive into AI, that it can be safe and secure. And that's why we are working on safety and security first.

Speaker 1

And then they want to understand, we're seeing applications where shopping bots will make it just far easier. You just say things like I'm having an office party, tell me what to buy. The whole ability for you to look through data sets and say, hey, can you bring up all the polling on the presidential approval for the last 5 years? These are unprecedented ways in which people can interact with technology and get a response that would have taken hours and hours before. And so we think there's going to be an enormous amount of work in redoing virtually every website to be AI enabled in order to provide that kind of confidence.

Speaker 1

That's where I think we're focusing a lot of our work with clients is exactly there. How does AI change your brand? After all, if you're going to effectively interact with a brand's AI as much as you're going to see advertisements, that becomes the absolute critical part of how you market and establish your brand image. And that's why I think it really benefits us because we're used to really engineering and designing the last mile, that connection between the company and the customer. And I think you're going to see that work explode.

Operator

Great. Just one final question on also things and I think this one's for Frank. Between your appetite to grow your media business and digital capabilities internationally, potential divestitures, the DAC, what should we expect in terms of deleveraging by the end of 2024? I think 3 times is leverage at the end of the morning, Tim.

Speaker 2

Yes. We're at 3 times now. We expect to be somewhere in the mid-2s by the end of the year, I would say. And that comes from the stronger cash flows that we'll experience in the back half of the year. It steadily ramps up Q3 and then Q4 really drives a lot of cash and that will drive down the leverage ratio.

Operator

Great. Well, that brings us to a closed day on our Q1 earnings call. Thank you very much for joining us. And I hope you'll be able to join us in a few months' time for our 2nd quarter call.

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Key Takeaways

  • Stagwell delivered $670 million in Q1 revenue, up 8% year-over-year, and grew adjusted EBITDA by 25% to $90 million, enabling the company to reiterate its full-year guidance.
  • A record $66 million of Q1 net new business and $284 million in trailing-12-month wins, with average deal size rising 13%, underscores strong client momentum.
  • Key segments drove growth: Performance Media & Data revenue rose 13%, Advocacy surged 80%, and Digital Transformation returned to revenue growth amid a strengthening pipeline.
  • Proactive cost management cut labor costs 2% and held G&A flat, boosting adjusted EBITDA margin by 320 basis points to 17%.
  • The company invested $14 million in its AI-enabled Stagwell Marketing Cloud and launched new AI partnerships and solutions, signaling continued focus on digital innovation.
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Earnings Conference Call
Stagwell Q1 2024
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